Supply pressures weigh on bonds despite PBoC policy pledges 

Central bank vows to step up economic recovery efforts, but government debt supply stokes concern

by Rosie Slater
Supply pressures weigh on bond prices despite PBoC monetary policy pledges 
The China Bond 50 Index lost 0.03%.

(ATF) The ATF indices closed with mixed results on Monday with the ATF ALLINDEX Corporate and Financial measures gaining 0.01% and 0.04% each.

Meanwhile, the China Bond 50 index, the flagship index, along with the ATF ALLINDEX Enterprise and Local Government gauges retreated 0.03%, 0.16% and 0.09% respectively. A coupon payment by Gansu Provincial Highway Aviation Tourism Investment Group contributed to the decline in the ATF ALLINDEX Enterprise index.

The Corporate Index gained 0.01%.

At its quarterly monetary policy meeting on Sunday, the People’s Bank of China (PBoC) committed to making stronger fiscal and monetary adjustments to counter the impact of COVID-19 on the economy. It also indicated that it would make use of multiple monetary policy tools to maintain liquidity, suggesting that Beijing does not intend to reverse its easing stance. 

The Enterprise Index retreated 0.16%.

However, Beijing has announced a net supply of government bonds of 8.5 trillion yuan ($1.2tn) this year, of which only 45% has been issued to date, according to Janice Xue in a research note from Bank of America Securities dated June 23. This suggests supply pressure in the second half, which will weigh on bond prices. Issuance is likely to peak in the summer, and to gradually decline in the fourth quarter, Xue said.

The Finance Index added 0.04%.

This month’s bond sales were the highest since 2007, according to Julian Evans-Pritchard at Capital Economics, with the Ministry of Finance planning to complete the issuance of 1tn in special sovereign bonds in July.

The Local Government Index dropped 0.09%.